SinoInsight 1
On Feb. 9, the Supreme People’s Court and the Supreme People’s Procuratorate released a joint judicial notice on the illegal trading of foreign currencies. Underground bankers that are involved in trading sums exceeding 5 million yuan (about $741,000) or making trades that gain a profit of over 100,000 yuan will be charged with the crime of conducting criminal business operations.
OUR TAKE
1. The judicial notice clearly targets underground bankers and is aimed at closing off channels of capital flight.
Based on our research of the CCP regime, the Supreme People’s Court and the Supreme People’s Procuratorate typically issue judicial notices when the Party is facing major problems. In other words, China’s capital outflow situation is likely to be very serious at present, and the Chinese people are pessimistic about the country’s economic prospects. It is possible that many in the middle class are trying ways to transfer their assets abroad.
2. There is another phenomenon which supports our capital flight theory. According to travel booking website Ctrip.com, the number of mainland travel arrangements to the U.S. increased by six times from a year ago during the 2019 Lunar New Year period. Mainland flight bookings to Canada increased by 21 percent.
Given the deteriorating Chinese economy and sharp increases in air travel to North America, there is a good chance that the more affluent middle class Chinese are seizing the opportunity of overseas travel to convert their renminbi into foreign currencies or value-preserving products and assets.
SinoInsight 2
On Feb. 8, former state television presenter Cui Yongyuan claimed in a Weibo post that a mainland police officer by the name of “LIN FENG” had HK$50 million (about $6.37 million) stashed away in Hong Kong and the mainland, and also owned property in Hong Kong. Shortly after Cui published his post, Chinese netizens identified the police officer as Lin Feng, the head of the sixth team of Shanghai Public Security Bureau’s economic investigations division. Netizens then exposed Lin of having accepted bribes after taking over the investigation case of Chinese company Kuailu Finance in April 2017.
In 2018, Cui Yongyuan exposed famous Chinese actress Fan Bingbing for tax evasion and accused Supreme People’s Court chief justice Zhou Qiang of covering up a high-profile criminal case involving mining companies in Shaanxi Province.
OUR TAKE
1. We believe that Cui Yongyuan’s explosive exposés are connected with the CCP factional struggle. Presently, Cui’s exposés are directed at the CCP’s political and legal affairs apparatus, and appear to be in line with Xi Jinping’s “sweeping black” campaign, which targets local Mafia and so-called “protective umbrellas” (law enforcement officials who protect criminal elements in exchange for benefits).
2. Cui’s exposés could be part of Xi’s effort to counter “soft coups” by political enemies. For instance, the Jiang faction has long controlled key Party apparatuses like propaganda and the political and legal affairs system. Xi may be the “core” leader, but he still has to contend with entrenched interests who are opposed to his policies.
3. If Xi wants to reach a trade agreement with President Trump, he must deal a major blow or shock to his political enemies to temporarily “scare the monkeys by killing the chickens” and ram through the reform policies required to meet U.S. demands.
However, the immense political risks which Xi faces will not be lowered regardless of whether or not he secures a deal to bring the trade war to a ceasefire. If anything, Xi can expect to face increased levels of political risk in the days ahead.
